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D&O exposure increases as the Spanish Government fails to extend Decree 10/2008

Following the credit crunch, the Spanish Government adopted a series of urgent measures to mitigate the effects of the financial crisis. Royal Decree 10/2008, published on 12 December 2008, was a regulation aimed at improving the liquidity of small and medium sized companies, as well as introducing other complementary economic measures in order to help these corporations survive the crisis.

One of the most noteworthy changes brought about by Decree 10/2008 was in relation to managing directors' liability exposure. The general position under the Spanish Companies Act is that managing directors who fail to act diligently once a company meets the legal criteria for dissolution and fail to comply with the deadlines provided by the Act, face joint liability for the debts of the company. Decree 10/2008 relaxed the deadlines and the duties that directors had to comply with when faced with capital decreases and insolvency, making the regime much more flexible.

It is presently unclear whether the Spanish government will extend Decree 10/2008 but, following its expiration at the end of 2014 and the time lapsed so far, this seems unlikely. As a consequence, the Companies Act regime with its stringent deadlines is now back in play, leaving directors and officers without the protective measures, which have reduced their liability exposure since 2008.

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